Should You Be Making Estimated Tax Payments?
Taxpayers are generally required to pay taxes throughout the year, not just at tax time. If you owe too much at the end of the year, you may face underpayment penalties. To avoid these penalties, some taxpayers must make quarterly estimated tax payments—an estimate of what they’ll owe beyond their withholdings and credits. These payments are typically due on April 15, June 15, September 15, and January 15.
You may need to make estimated payments if you:
✔ Earn income without withholding, such as from self-employment, rental properties, investments, prizes, or alimony.
✔ Have insufficient tax withholding on your salary, pension, Social Security, or IRA distributions.
✔ Had a balance due of more than $1,000 on last year’s tax return.
How to Avoid Underpayment Penalties
Most taxpayers can avoid penalties if they:
✅ Owe less than $1,000 after withholdings and credits.
✅ Pay at least 90% of their current year’s tax liability or 100% of last year’s tax liability (110% for higher incomes).
What Can You Do?
If you regularly owe taxes, you should discuss with your tax preparer whether estimated payments are right for you. In some cases, adjusting your tax withholding (from wages, Social Security, or IRA distributions) can eliminate the need for estimated payments.
If your tax liability is due to investment income or capital gains, tax-efficient portfolio strategies may help. Our financial advisors offer free consultations to review your investments and identify ways to improve your tax situation.
You can't always avoid the need to pay estimated taxes. If you've been instructed to pay estimates (or to increase your withholdings), it is important to understand that failing to do so could result in tax penalties.
We’re Here to Help
If estimated tax payments are recommended, our tax professionals at Alliance Financial & Income Tax can provide guidance, payment instructions, and vouchers to make the process seamless. If you have already filed your 2024 tax return and are wondering whether to make estimated payments, please contact us.
Avoid penalties by planning ahead!